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Evolving into a mid-stage biotech

AlzeCure Pharma 5 January 2022 Update
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AlzeCure Pharma

Evolving into a mid-stage biotech

Company update

Pharma & biotech

5 January 2022

Price

SEK7.2

Market cap

SEK272m

Net cash (SEKm) at end-Q321

62.7

Shares in issue

37.8m

Free float

63%

Code

ALZCUR

Primary exchange

Nasdaq First North Growth

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.8

(12.5)

(19.6)

Rel (local)

8.9

(23.4)

(40.6)

52-week high/low

SEK10.44

SEK5.60

Business description

AlzeCure Pharma is a clinical-stage biotech company based in Sweden focused on developing innovative, small molecule drugs for the treatment of Alzheimer’s disease (symptomatic as well as disease modifying) and pain (neuropathic and osteoarthritic).

Next events

ACD856 Phase I MAD data

H122

Update on Phase IIa ACD440 study

H122

Analysts

Dr Jonas Peciulis

+44 (0)20 3077 5728

Dr Sean Conroy

+44 (0)20 3077 5700

AlzeCure Pharma is a research client of Edison Investment Research Limited

Following the results released earlier this year from a Phase Ib study investigating ACD440, a topical TRPV1 antagonist for pain, AlzeCure is now preparing for a Phase II trial. Its most advanced asset in Alzheimer’s disease (AD), ACD856, a novel cognitive enhancer from its NeuroRestore platform, is now advancing through the multiple ascending dose (MAD) part of the Phase I study. In parallel, the company is also working on a second AD platform, Alzstatin, which involves γ-secretase modulators with potentially disease-modifying characteristics. AD management has undergone seismic changes this year, with the first new drug approved in two decades, so AlzeCure’s AD assets may receive renewed interest. Our updated valuation is SEK847m or SEK22.4/sh (vs SEK21.9/sh previously).

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/19

0.0

(50.9)

(1.35)

0.0

N/A

N/A

12/20

0.0

(71.4)

(1.89)

0.0

N/A

N/A

12/21e

0.0

(75.9)

(2.01)

0.0

N/A

N/A

12/22e

0.0

(79.8)

(2.11)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

ACD440 for neuropathic pain: Phase II trial in sight

ACD440 is being developed for peripheral neuropathic pain, which is a large and diverse group of pain disorders. Phase II trial details will also reveal more precise settings for which AlzeCure is aiming to develop ACD440. This will allow us to better evaluate the commercial opportunity for this drug. Of note is the fact that the discovery of biological principles behind the transduction of pain has been awarded the Nobel Prize this year.

NeuroRestore: Approaching MAD data readout

In August 2021, AlzeCure reported the findings from the single ascending dose (SAD) part of the Phase I study investigating its novel cognitive enhancer ACD856. Safety/tolerability data were good, while the therapeutics window could be larger than expected, so the company is investigating higher doses (SAD). In parallel, it also initiated the next step, the MAD part of the Phase I study, in October 2021. The results from this part are expected in H122, which will then lead to a Phase II study.

Valuation: SEK847m or SEK22.4 per share

Our risk-adjusted NPV for AlzeCure is SEK847m or SEK22.4 per share from SEK826m or SEK21.9 per share, as rolling forward our model offset the lower cash position (we had already increased the success probability for ACD440 in our last report). Results for the first nine months of FY21 (9M21) delivered no surprises, with steady operating spending and cash of SEK62.7m, which is sufficient to fund operations well into 2022.

Painless platform update

ACD440 is advancing into Phase II

ACD440 is a topical vanilloid receptor 1 (VR-1) antagonist currently in a Phase Ib trial. The VR-1, more commonly known as TRPV1 or the capsaicin receptor, has been a well-established target for the treatment of pain and has been implicated in the transduction of pain (nociceptive, inflammatory or neuropathic). The discovery of this mechanism by professor David Julius was awarded the 2021 Nobel Prize in Physiology or Medicine at University of California, San Francisco, United States. His fundamental research led to the identification of the specific protein responsible for the sensation of burning pain, TRPV1, in 1997.

As we explained in our initiation of coverage report, oral TRPV1 antagonists have been extensively investigated in clinical trials in various pain indications by multiple large pharma companies (Amgen, Abbott, GSK, Merck/NeuroGen, Glenmark/Eli Lilly). Such strong interest from large pharma is a result of the lucrative and broad range of pain indications (osteoarthritis, dental pain, migraine), where there is a need for non-opioid pain killers. However, all oral TRPV1 antagonists have been accompanied by undesirable side effects. Namely, hyperthermia and impairment of noxious heat sensation. ACD440 is a topical formulation of a TRPV1 antagonist, which we believe could be a solution to the undesirable side effects, while retaining the efficacy seen in the oral formulation trials.

Phase Ib final results recap

In June 2021, AlzeCure presented the newest available data from its projects in pain at the IASP 2021 World Congress on Pain. This included final results from the Phase Ib study, which investigated the safety profile of ACD440.

This was a double-blind, randomized, placebo-controlled Phase Ib trial (24 healthy volunteers; split body design) to explore the effects of topically administered ACD440 on evoked pain stimuli. To gather further insight, ACD440 was applied on three types of skin condition: intact, UVB irradiated (erythema) and mechanically stripped skin (compromised barrier function).

The safety/tolerability profile of ACD440 was very good, causing no topical (erythema, desquamation, pruritus) or systemic adverse reactions on any of the three skin conditions. The efficacy outcome measures showed that ACD440 gel had a highly significant analgesic effect both on laser-evoked pain and mechanical sensitivity. This effect was seen in all three skin conditions indicating the broad potential use of the product.

Next steps

Peripheral neuropathic pain is a symptom of a broad group of different, underlying conditions such as diabetic nephropathy, chemotherapy-induced pain or herpetic neuralgia. Given the potentially large patient heterogeneity across this indication, we believe management will likely investigate ACD440 in specific sub-populations of patients. No specific guidance has been provided yet on Phase II trial design, but we expect this is likely to be communicated in the near future (the company has requested a pre-IND meeting with the FDA) and should give a better sense of the forms of neuropathic pain it will target.

At the moment, we use a top-down approach in our valuation model to estimate peak sales. However, neither the existing topical pain relief products nor oral neuropathic pain killers are good comparator drugs. ACD440 could potentially be ‘the best of both worlds’, ie safe and tolerable as a topical product, but more effective than typical topical non-steroidal anti-inflammatory drugs (NSAIDs). Once AlzeCure has defined precise settings for the Phase II trial, we will look to develop a bottom-up project model to fine-tune our valuation.

Painless platform: TrkA-NAM drug candidate about to be revealed

The latest preclinical data from AlzeCure’s TrkA-NAM project were also presented at the IASP Congress in June 2021. This project investigates a small molecule negative allosteric modulator targeting the TrkA receptor. This is a novel analgesic mechanism that involves blocking the activity of the pain mediator nerve growth factor (NGF) or its receptor TrkA.

The strategy with this project is somewhat similar to ACD440. Large pharma companies have explored this pathway extensively using NGF targeting antibodies. For example, Pfizer/Lilly’s anti-NGF antibody tanezumab has been investigated in Phase III trials in osteoarthritic pain and showed efficacy in pain management. However, although proven to be effective, in a small group of patients it caused rapidly progressing osteoarthritis, which ultimately stalled its approval this year (the FDA advisory committee voted against in March 2021, while the EU panel rejected it in September 2021). Without the safety issues, this drug could have been a novel blockbuster pain killer, in our view, given the scale of the problem (pain in osteodegenerative conditions).

AlzeCure’s TrkA-NAM approach is differentiated from the NGF targeting antibodies. TrkA-NAM could offer a safety improvement over anti-NGF antibodies through selectively attenuating NGF/TrkA signalling, while sparing NGF/p75NTR signalling (please see our initiation report for a more detailed explanation of the mechanism of action). In addition, AlzeCure’s TrkA-NAM compounds are small molecules, which have several advantages over antibodies including more convenient administration and lower cost of goods.

So far, AlzeCure’s lead optimisation efforts in the Trk-NAM project have identified potent and selective potential TrkA-NAM drug candidates. These molecules demonstrated pain relief in preclinical in vivo models, both in neuropathic pain and arthritis, suggesting broad indication potential. AlzeCure expects to select and announce a drug candidate in the coming weeks. We do not yet include Trk-NAM in our model, but will reconsider this project once a drug candidate is selected and proceeds to clinical testing.

In terms of a directly comparable programme, we note that Asahi Kasei is investigating its TrkA inhibitor, AK1830, in a Phase II stage for pain associated with osteoarthritic pain. It is particularly notable that this was in-licensed as a preclinical asset from Array BioPharma in March 2016, in a deal worth c $75m ($12m upfront, $64m in milestone plus royalties) for commercial rights in Asia, highlighting the near-term value which could be crystallised from the AlzeCure’s TrkA-NAM programme.

NeuroRestore and Alzstatin platforms

AlzeCure has two distinct approaches when it comes to tackling AD. The NeuroRestore platform is focused on novel symptomatic treatment of AD (lead compound ACD856 is in Phase I). The Alzstatin platform (preclinical) is specifically aimed at modifying the course of AD and has a differentiated mechanism of action from the anti-Aβ antibodies.

In August 2021, AlzeCure provided an update on the Phase I trial investigating its first-in-class cognitive enhancer ACD856 from the NeuroRestore platform. Safety/tolerability data from the single ascending dose (SAD) part of the study were good. The company also announced that the SAD part of the study will be expanded to investigate higher doses as the drug’s therapeutic window might be larger than initially expected. In parallel, AlzeCure also initiated the next step, multiple ascending dose (MAD) part, in October 2021. The results from this part are expected in H122, which then would lead to a Phase II study. ACD856 targets improves the signalling of neurotrophins, including nerve growth factor and brain-derived neurotrophic factor, through positive modulation of the TrkA and TrkB receptors, and is expected to improve cognitive function and memory. So it is expected to be a symptomatic treatment, although there is a scientific rationale for disease modification potential as well.

AlzeCure’s second platform focused on AD is called Alzstatin and is dedicated to the development of disease-modifying drug candidates. These are small molecules capable of modulating γ-secretase, a target involved upstream in the production cascade of toxic Aβ-aggregates. Modulation of γ-secretase produces shorter, less toxic Aβ-peptides while not changing overall levels of Aβ. This is a novel approach where modulation rather than full inhibition of γ-secretase is expected to circumvent the safety issues previously found by large pharma with γ-secretase. Both assets from this platform are in preclinical development.

Detailed descriptions of the NeuroRestore and Alzstatin platforms and underlying technologies can be found in our initiation report. In addition, AlzeCure held an R&D event on 1 September 2021 focused on the NeuroRestore platform.

Seismic developments in AD management

The management of AD saw significant changes this year. The FDA approved the first-ever disease-modifying drug Aduhelm on 7 June 2021 (anti-Aβ antibody, aducanumab, Biogen). The final data set that supported the approval was rather controversial (one Phase III was considered successful, the second Phase III trial failed). This meant that although much needed, the launch of this drug was troublesome: several of the FDA advisory committee members resigned, Biogen had to voluntarily narrow the label, initial sales did not meet expectations, insurance reimbursement is still not clear and the EMA recommended that the European Commission reject Aduhelm. All this led Biogen to cut the initial price tag of $56k in half.

Both AlzeCure’s platforms aimed at AD are very differentiated from classic anti-Aβ antibodies. So, although there is no read-across from Aduhelm’s story from a technology perspective, we believe the controversial approval from the FDA is a strong indication that regulators are keen to make novel AD treatments available as quickly as possible. For example, one of the arguments the FDA made was that even though Aduhelm’s cognitive decline data were contradictory, the antibody was shown to reduce Aβ plaques, which can be used as benchmark for cognitive decline. Until now, there has been an understanding that the FDA would want to see a proven clinical benefit for any disease-modifying AD drug. However, the FDA’s latest wording that Aβ plaque reduction can be used as a biomarker reignited interest in this area, with other large pharma companies rushing to submit their datasets (Eli Lilly is using the accelerated pathway to file for approval of donanemab in Q122 and Roche expects to have the data for approval of gantenerumab in H222).

Given the complicated launch of Aduhelm, we believe that the clinical benefit of an AD drug will still need to be demonstrated for it to be widely accepted, in conjunction with positive effects on biomarkers. It is worth noting that AlzeCure had previously mentioned that in preclinical studies its Alzstatin compounds reduced Aβ plaques by 50%. Also, because AD is a vast indication, novel effective symptomatic treatments will also be welcomed. We therefore find the strategy of targeting both settings in AD, symptomatic and disease-modifying treatments, to be a rational approach given the complex history of drug development in this indication.

Exhibit 1: AlzeCure’s R&D pipeline

Source: AlzeCure

Valuation and financials

Our updated risk-adjusted NPV of AlzeCure is marginally higher at SEK847m or SEK22.4 per share from SEK826m or SEK21.9 per share previously, as rolling forward our model offset the lower cash position. We keep our other assumptions unchanged as we had already increased the success probability for ACD440 in our last update following Phase Ib data. A full breakdown of our valuation and underlying assumptions can be found in our initiation report.

Exhibit 2: AlzeCure sum-of-the-parts valuation

Product

Indication

Launch

Peak sales* ($m)

NPV
(SEKm)

Probability of success

rNPV
(SEKm)

NPV/share
(SEK)

NeuroRestore – ACD856

AD

2030

4,600

6,600.5

5.0%

531.1

14.1

Painless – ACD440

Neuropathic pain

2028

500

1,096.7

20.0%

253.5

6.7

Net cash, last reported

62.7

100.0%

62.7

1.7

Valuation

 

 

7,759.9

847.2

22.4

Source: Edison Investment Research. Note: WACC = 12.5%. *Peak sales are rounded to the nearest $100m.

AlzeCure’s latest results (9M21) showed operating spending of SEK55.3m, flat y-o-y. Cash was SEK62.7m at end-Q321. In fine-tuning our estimates, we have slightly reduced our operating loss expectations to SEK76.0m and SEK79.8m in FY21 and FY22, respectively, from SEK82.0m and SEK86.1m previously. Existing cash is sufficient to fund the operations well into 2022. We assume an illustrative long-term liability of SEK45m in 2022 in lieu of equity funding, as per our research principles.

Exhibit 3: Financial summary

Year end 31 December

SEK'000s

2018

2019

2020

2021e

2022e

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Total revenues

0

0

0

0

0

Cost of sales

0

0

0

0

0

Gross profit

0

0

0

0

0

SG&A (expenses)

(2,558)

(6,035)

(9,375)

(11,609)

(11,900)

R&D costs

(36,828)

(44,499)

(61,861)

(63,861)

(67,054)

Other income/(expense)

3,597

(84)

152

0

(254)

Exceptionals and adjustments

 

0

0

0

0

0

Reported EBITDA

 

(35,789)

(50,618)

(71,084)

(75,470)

(79,208)

Depreciation and amortisation

(104)

(290)

(495)

(544)

(580)

Reported Operating Profit/(loss)

(35,893)

(50,908)

(71,579)

(76,015)

(79,787)

Finance income/(expense)

(92)

50

213

68

0

Other income/(expense)

0

0

0

0

0

Exceptionals and adjustments

0

0

0

0

0

Reported PBT

(35,985)

(50,858)

(71,366)

(75,947)

(79,787)

Income tax expense

0

0

0

0

0

Reported net income

 

(35,985)

(50,858)

(71,366)

(75,947)

(79,787)

Basic average number of shares, m

22.8

37.8

37.8

37.8

37.8

Basic EPS (SEK)

 

(1.58)

(1.35)

(1.89)

(2.01)

(2.11)

Diluted EPS (SEK)

(1.58)

(1.35)

(1.89)

(2.01)

(2.11)

BALANCE SHEET

Property, plant and equipment

 

597

1,768

1,944

2,071

2,162

Intangible assets

17

17

17

17

17

Other non-current assets

7

7

7

7

7

Total non-current assets

621

1,792

1,968

2,095

2,186

Cash and equivalents

 

234,549

182,499

112,434

36,356

1,000

Trade and other receivables

8

16

8

12

10

Other current assets

2,604

2,448

3,417

3,417

3,417

Total current assets

237,161

184,963

115,859

39,785

4,427

Non-current loans and borrowings*

0

0

0

0

44,520

Total non-current liabilities

 

0

0

0

0

44,520

Trade and other payables

 

3,646

2,997

3,966

3,966

3,966

Other current liabilities

967

1,751

3,106

3,106

3,106

Total current liabilities

4,613

4,748

7,072

7,072

7,072

Equity attributable to company

233,169

182,007

110,755

34,808

(44,979)

CASH FLOW

Operating Profit/(loss)

 

(35,893)

(50,908)

(71,579)

(76,015)

(79,787)

Depreciation and amortisation

104

290

495

544

580

Other adjustments

0

0

0

0

0

Movements in working capital

(392)

283

1,363

(4)

2

Interest paid / received

(93)

50

213

68

0

Income taxes paid

0

0

0

0

0

Cash from operations (CFO)

(36,274)

(50,285)

(69,508)

(75,407)

(79,206)

Capex

(459)

(1,461)

(671)

(671)

(671)

Acquisitions & disposals net

 

0

0

0

0

0

Other investing activities

0

0

0

0

0

Cash used in investing activities (CFIA)

(459)

(1,461)

(671)

(671)

(671)

Net proceeds from issue of shares

217,330

(381)

0

0

0

Movements in debt

0

0

0

0

44,520

Other financing activities

0

77

114

0

0

Cash from financing activities (CFF)

217,330

(304)

114

0

44,520

Increase/(decrease) in cash and equivalents

180,597

(52,050)

(70,065)

(76,078)

(35,356)

Cash and equivalents at beginning of period

53,952

234,549

182,499

112,434

36,356

Cash and equivalents at end of period

234,549

182,499

112,434

36,356

1,000

Net (debt)/cash

234,549

182,499

112,434

36,356

(43,520)

Source: AlzeCure Pharma accounts, Edison Investment Research. Note: *Long-term debt used instead of equity issue.

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This report has been commissioned by AlzeCure Pharma and prepared and issued by Edison, in consideration of a fee payable by AlzeCure Pharma. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by AlzeCure Pharma and prepared and issued by Edison, in consideration of a fee payable by AlzeCure Pharma. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

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